Privatizing liquor: Make sure you make $, state told

The high-stakes, big-money battle over the liquor business in Washington continued in Olympia on Monday, as state lawmakers considered details about how to ask for bids to take over its liquor distribution system.

Earlier this year, Gov. Chris Gregoire signed a bill allowing officials to consider such offers. Under S.B. 5942, the state would still maintain control of liquor sales but would sell a distribution lease agreement if the Liquor Control Board decided to ultimately accept a proposal. But those who favor the complete privatization of the liquor system – including retail sales – view the bill signed by Gregoire as a way to thwart their efforts. The full privatization forces, led by retail giant Costco, are supporting Initiative 1183, which is on the fall ballot.

On Monday a House legislative panel examined proposed language as the state prepared next month to send out an RFP (request for proposal), seeking bids from the private sector about the distribution system. Those RFPs could be in hand just before voters weigh in on the competing idea embodied in I-1183, total privatization.

Several lawmakers – as well as people testifying – worried that the state wasn’t clearly spelling out how much money it would hope to make from privatization of its liquor distribution system.

“There isn’t really a definition in here of what a net financial gain means,” said Rep. Ross Hunter, D-Medina.

Rep. Bruce Dammeier, R-Puyallup, agreed.

“I don’t care that much if the guy’s got a hellacious business plan, if it’s not financially positive for the state of Washington,” he said.

And Rep. Ed Orcutt, R-Kalama, added: “We should be making more money out of this than what our net is right now.”

Greg Hanon of Costco told lawmakers that the bill Gregoire signed required that taxpayers make money from any privatization of the distribution system. But the “draft RFP contains no definition or criteria” in that regard, he said.

The Liquor Control Board runs the distribution system now. There’s a single distribution center in Seattle with 86 employees. It handles all incoming liquor products sold in stores, distributes products to the 373 state, contract, military and tribal stores. The center distributes about 4.7 million cases a year (that’s 18,000 cases a day).The state Auditor estimates the distribution building and equipment is worth $33 million.

The law Gregoire signed includes an emergency clause that Costco and other retail interests objected to. It lets the state immediately begin the 120-day process of sending out and analyzing bids. Costco worries that process could affect its plans to offer a citizen initiative in the fall. Last November, voters rejected two initiatives that would’ve removed state control of liquor. One, Initiative 1100, was the Costco measure. The retail giant contributed more than $3 million in an unsuccessful effort to pass it. Critics said Costco and others would getting a valuable business and the state was essentially getting nothing in return.

In attempt to assuage naysayers, Costco’s new privatization idea includes a requirement that private stores pay 17 percent of liquor sales back to the state and pay big fees as well. State analysts recently crunched the numbers and determined Initiative 1183 could be something of a financial boon for taxpayers – providing tens of millions of dollars in new revenue each year. But Protect Our Communities, a coalition opposed to privatized liquor sales, said the OFM analysis of I-1183 also showed that customers would end up paying more. The new fees would increase the “mark-up” for liquor up to 72 percent – which amounts to a “27 percent hidden tax increase” the group said.

Washington currently is one of 18 “control states,” places where the government runs the sale and distribution of liquor. The Evergreen State has had this system since 1933, and officials say it results in lower per-capita alcohol consumption and a reliable stream of tax revenue for government.